S&P500: Room to Run?

North American equity markets are feeling pretty healthy this morning as they are edging higher on the day so far, but the USD isn’t feeling the same sort of love. Following the Federal Reserve’s dovish leaning meeting last week, stock markets have gotten their strength back, and the parade of less than stellar economic results of late from the US is making that stance seem more and more justified. This morning’s example of a US data miss was twofold with the Chicago Fed National Activity Index declining 0.11 and Existing Home Sales only increasing 1.2% on expectations of a 1.8% increase. Outside of employment figures outperforming in the US, you’d be hard pressed to find glimmers of hope, and the Fed’s data driven decisions on interest rate hikes look increasingly likely to be delayed well past even mid-2015.

If the market continues to believe that the Fed will not do anything to rock the boat over the next few months, there could be a lot more room to run for not only US equity markets, but European equities as well. The boost that the European Central Bank is giving their region with their Quantitative Easing program is akin to that of the Fed’s QE3 program, and some of that liquidity could naturally leak over to the US side as well. Remember, not only did US equities increase during QE3’s run, but European markets did as well, and that dynamic could very well play out in this scenario too.

The potential proof of that theory is upon us in the S&P500 this morning as it has risen to within sight of all-time highs in the index. If the Fed’s apprehension to raise rates and Europe’s QE program can continue to exert influence, the S&P500 may have room to run all the way up to the 161.8% Fibonacci extension of the most recent 61.8% Fibonacci retracement. That type of advancement would also complete a visually compelling ABCD pattern that would theoretically complete in early April. The main challenge to this line of thinking though could be the resistance at the all-time highs near 2120. If we can clear that level, the bulls may enjoy some more time in the limelight.